Can I Buy My First Home If My Credit is Poor?

Maybe you got laid off and behind on your payments or maybe you in over your head with credit cards in college. Poor credit doesn't necessarily close the door to homeownership. You might just have to take a different path. 

Is your credit poor?

Saying your credit is bad or poor isn't like saying "I'm having a bad hair day" or "I'm bad at drawing." Those are both a matter of opinion, but having poor or bad credit actually has a very specific meaning. So, let's start with some credit definitions. 

  • Excellent: 750+
  • Good: 700-749
  • Fair: 650-699
  • Poor: 600-649
  • Bad: below 600

Find the right loan 

Mortgage loans aren't one size fits all and there are a lot of options. If you're a first-time buyer with poor credit, you can explore some government loan options that help first-time buyers get mortgage loans, buyers with lower credit scores, and veterans become homeowners. 

FHA loans 

FHA loans are a great option for both first-time buyers and buyers with low credit scores. To apply, you need to have a FICO credit score of 580, which is at the higher end of the "Bad" category. In addition to accepting applicants with lower credit scores, FHA loans only require you to have a 3.5% downpayment. 

VA loans

VA loans are a great benefit that any veteran buying a home should look into. They typically have lower requirements for credit scores than a conventional loan. Credit requirements can vary lender to lender, so be sure to shop around for a lender and find the one who fits your needs the best. And some lenders even have special programs to help veterans improve their credit before applying for a loan. 

Be prepared to pay

When you're buying a house with poor credit, you're typically going to end up with a higher interest rate than you would if you had good credit--and that means higher payments each month. You need to be sure you can afford your monthly mortgage payment with the higher interest rates. Your lender might also want to see a higher down payment than you would need if you had good credit. 

Take steps to improve

True, you can buy a house when your credit is poor. But having poor credit can affect other areas of your financial life. For starters, you're paying more in interest on your new mortgage than you would have if you had good credit. Your credit score can also make it harder to get loans for other big-ticket items like cars and prevent you from qualifying for certain credit cards (goodbye, travel rewards). And once you improve your score, you can start thinking about refinancing to lower that interest rate! 

Still have questions? Get more finance tips for first-time home buyers